When Twice As Irrational Is Just Irrational – And a Fantastic Buy!

After yet another fall, shares of AutoCanada Inc. (TSX:ACQ) are looking like the most attractive buy today!

| More on:
Silhouette of businessman sit on chair and hold a cigar and looking at the city in night.

Image source: Getty Images

Several weeks ago AutoCanada Inc. (TSX:ACQ) reported earnings that were no better than expected, with an unfavorable result for shareholders. Shares declined by close to 10% the day following the news, and as is always the case, many new investors became interested in the stock.

Given that the dividend yield is a sustainable $0.10 per share per quarter, the lower share price has led to a higher dividend, which has made the stock more attractive to income investors. What makes this story even more interesting is the second leg down seen past week. On Wednesday, shares declined by 6.5% as investors seemed to have a herd mentality amidst another Trump tweet. Given that tariffs are starting to impact the auto industry, it’s not surprising that shares of this company are once again declining.

The caveat is twofold. First, Canadians need to purchase a vehicle when their old car breaks down, which will need to be done in spite of a price tag that rises from $25,000 to $27,000. The end result is the same: a new car will be sold either way.

Second, as many inside the industry are already aware, the amount of profit that is made for each new vehicle sold is very little. Instead, it’s the maintenance of older vehicles (and the repairs) that bring in a much greater amount of profit to these car dealerships than most investors realize. If you’ve ever been in a difficult spot, you know that a good mechanic is worth their weight in gold!

When we look behind the curtain, things start to look significantly better than we realize. Although AutoCanada Inc. owns a number of dealerships across the country and is expanding into the United States, the reality is that the province or state with the greatest number of locations is Alberta. It’s by far the most important geographic location for the long-term success of the company.

Given the recent uptick in the price of oil, investors should not hesitate to deploy their capital into this name, as the past three years have been challenging for the oil-dependent province. In spite of a troubling relationship between Alberta and British Columbia, the long-term success of Western Canada is all but guaranteed. After generations of being considered second to Ontario and Quebec, there is no doubt that things will get resolved and the West will regain its position.

In addition, what could become a boom for the company is a pipeline construction that could bring in a lot of federal money. When many people work for fair wages, selling more vehicles is a distinct possibility, but only time will tell how many.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor RyanGoldsman has no position in any of the stocks mentioned.

More on Investing

grow dividends
Investing

MTY Food Group Stock: How High Could it Go in 2023?

MTY Food Group Inc. (TSX:MTY) stock is trading close to its 52-week high, but it could still rise higher in…

Read more »

Dice engraved with the words buy and sell
Stocks for Beginners

The TSX’s Biggest Losers in January 2023 (Should You Sell?)

While markets have trended up in 2023, the recent natural gas drop has made some energy stocks the TSX's biggest…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Monday, February 6

TSX investors may remain focused on corporate earnings and new geopolitical developments today.

Read more »

Doctor talking to a patient in the corridor of a hospital.
Investing

TFSA: Healthcare Dividend Stocks Are Perfect for Passive Income

Top healthcare dividend stocks like Extendicare Inc. (TSX:EXE) and others can provide huge passive income in your TFSA.

Read more »

TFSA and coins
Tech Stocks

TFSA: Invest in These 2 Stocks for a Legit Chance at $1 Million

Are you interested in building a $1 million portfolio? Invest $20,000 in these two stocks!

Read more »

edit Person using calculator next to charts and graphs
Investing

The Top TSX Stock on My Watch List Right Now

Here's why Alimentation Couche-Tard (TSX:ATD) remains a top TSX stock that long-term investors seeking growth and yield will want to…

Read more »

Hourglass projecting a dollar sign as shadow
Investing

3 Stocks to Add to Your TFSA ASAP

Given their stable cash flows and solid underlying businesses, these three stocks are excellent additions to your TFSA in this…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »